The market's visibility to early quality issues has never been greater and will continue to accelerate. The extensive awareness creates opportunities for the prepared enterprise, and substantial risks for those slow to react.

By Kenneth Wong

December 1, 2015

Autodesk began nudging its customers toward subscription licensing by announcing Feb., 1, 2016, as the end date for perpetual desktop licenses. Image courtesy of Autodesk.

Earlier this year, just a week shy of Valentine’s Day, Autodesk signaled the perpetual license’s twilight: “New commercial seats of most standalone desktop software products will be available only by desktop subscription beginning February 1, 2016,” the company declared. In doing so, it publicly crossed the point of no return.

In enterprise, consumer and product lifecycle management (PLM) software sectors, brands like Salesforce, Norton Antivirus and Arena Solutions have proven subscription licensing to be a viable, sustainable model. But in the design and engineering software market, the status quo is perpetual licensing. Here, “subscription” remains a touchy subject; it still raises eyebrows and blood pressure.

Its opponents see subscription licensing as a way for some vendors to keep the users on a long leash, hold their proprietary data hostage, and collect fees indefinitely. Others may welcome the subscription model because the pay-as-you-go or pay-per-usage option gives them instant access to the software at a much lower cost.

According to Jon Peddie Research’s 2015 CAD Report, Autodesk accounts for 29% of the $8 billion CAD market. As such, the company carries a lot of weight. When it makes a major policy shift, it tends to produce repercussions across the market. Its decision to fully commit to subscription is closely observed by its partners, customers, resellers and even rivals, because everyone has some skin in the game.

The Long Goodbye

In September, Andrew Anagnost, Autodesk’s senior vice president of Industry Strategy and Marketing, began talking to the press to clarify how the company intends to handle the existing perpetual license owners. He assured them that customers who have bought perpetual licenses will continue to get updates “for as long as they are on maintenance.”

Some buyers began stocking up on perpetual licenses to beat the imminent cutoff date, Anagnost acknowledged. “But not as much as we thought we might see,” he says. In many regions, the opposite happened. “In Australia and New Zealand, we stopped selling AutoCAD LT [via perpetual licenses] last year. But what happened was that the number of people buying AutoCAD LT went up after that,” Anagnost says. The implication is that the lower upfront cost in subscription is enticing more buyers to pick up the software.

Adopting a hybrid approach, Dassault Systèmes began offering its two newer cloud-centric products—Industrial Designer and Mechanical Designer—as quarterly and annual subscriptions. The announcement was made at the SOLIDWORKS World 2015 user conference. “The Lighthouse customers [with early access] told us [Mechanical Conceptual] is not a tool they’ll use for only one month or two. They’ll do concepts all year long, so they’re already committed to a yearly lease. [The subscription term requirement is] not an issue for them. But maybe we’ll see other smaller customers and independent designers who’re not like that. We’re all going to learn from this, and we’ll adjust if needed,” said Bertrand Sicot, former CEO of SOLIDWORKS.

Going After the Non-Committal Buyers

In September 2013, Siemens PLM Software tiptoed into subscription by introducing a monthly licensing option to its mainstream CAD program Solid Edge. Prices range from $100 a month (design and drafting only) to $400 a month (comprehensive 3D CAD with support contract).

Kris Kasprzak, Siemens PLM’s marketing director at the time (currently product manager for NX), explained: “A typical use case might be a government contractor who needs to work on a project for six months. They don’t want to buy the software, but want to be able to pay for it for using it six months. Or start-up companies without a lot of money. They can use Solid Edge on subscription until they’ve made it and realized they’ll need to use it perpetually. Or businesses that are cyclical, like toy manufacturers who’re on fire during holiday seasons, then have less work later.”

Subscription vs. SaaS

Almost all browser-based, cloud-hosted software-as-a-service (SaaS) offerings are sold as subscription software ... but not all subscription softwares are browser-based, cloud-hosted SaaS titles. Adobe has moved all of its individual titles and suites—such as Photoshop, Illustrator and Creative Suite—to the subscription model. But they’re not delivered as browser-based software. Users install the software on a local machine to use it. As long as the subscription is active, the software remains operable.

CAD titles currently offered under subscription—like Autodesk products and Solid Edge from Siemens PLM Software—work the same way. They require a full installation; you cannot use them from a browser the way you would most SaaS products. Onshape, founded by former SOLIDWORKS veterans, stands out as an exception to this. The software is a full-fledged CAD program that runs in the browser (no installation needed). As a truly functional SaaS CAD product, it earns the right to introduce the acronym CaaS (CAD-as-a-service).

Solid Edge subscription and perpetual license options are still available from Siemens. “Some of our customers have a strong preference for one or the other type of license. We anticipate the interest level in subscription to be fluctuating in some of our core markets and intend to continue offering customers the choice of model,” says Dr. Stefan Jockush, vice president of Strategy for Siemens PLM.

PTC’s Windchill PLM products were previously available as software-as-a-service (SaaS) offerings through partners like NetIDEAS. But after acquiring NetIDEAS last year, PTC launched PLM Cloud. More recently, the company began offering a subscription option for all its software, including its CAD program Creo. According to the company’s FAQ, initial subscription terms are one, two or three years, depending on the solution chosen.

Stan Przybylinski, vice president of Research at CIMdata, says, “There are still people who want to have the software forever, but we increasingly live in a subscription world now, driven by the Web and apps, so it is natural that people want to have that experience at work.”

Offering subscription licensing does come with certain risks for the vendors. For one thing, customers are not obligated to remain on subscription once the project has run its course. “People can always walk away each year, but we know that in practice that does not happen often. Whether you like it or not, your information and business gets locked into the tools of your chosen providers,” says Przybylinski.

Starting Over From a Blank Sheet

In March, a group of former SOLIDWORKS veterans launched a new CAD brand titled Onshape. As it turned out, being a newbie in a mature market wasn’t a handicap but an opportunity. The company wasn’t saddled with an existing customer-base entrenched in perpetual licenses; nor did it have a legacy code originally developed for the desktop PC environment. This allowed the startup to do what most established CAD vendors couldn’t or wouldn’t do. It architected its CAD package to run in the cloud; and it offers the product on subscription.

Jon Hirschtick, co-founder of SOLIDWORKS, now runs Onshape as the company’s board chairman. On the company’s blog, he wrote: “Younger people have grown up in a post-desktop world and have different expectations about computers. They don’t even think about having ‘a computer.’ They walk in with their laptops and their tablets and their mobile phones. They expect computing to be modern and available anywhere, any time on any device. Cloud, Web and mobile technologies are our exciting new raw materials for creating CAD.” Onshape subscriptions begin at $100 per user, per month. A free version with limited private storage is also available for students and makers.

CAE Edging Toward Flexible Licensing

A handful of CAE or simulation software vendors currently offer SaaS. SimScale, for example, markets its browser-based simulation software to individuals for as little as €200 (about $215) per month. But the majority still sells perpetual licenses for desktop or server installations or uses a token-based system. If the CAD market gradually migrates toward subscription, will CAE follow in its footsteps?

“A lot of our customers, whether they’re enterprise customers or small businesses, are interested in this pay-per-use or pay-as-you-go option—what we call elastic licensing. However, it’s still very new in CAE,” says Ray Milhem, vice president of Enterprise Solutions and Cloud at ANSYS.

Milhem attributed the change in software users’ attitude toward subscription or on-demand licensing to the introduction of “remote computing and cloud computing.” He says, “People are beginning to ask for elasticity not just in their compute capacity but also in their licensing.”

ANSYS recently began offering its Enterprise Cloud option, which runs on Amazon Web Services (AWS). The company writes, “Customers who adopt the ANSYS Enterprise Cloud can scale their simulation capacity—including infrastructure and software assets—on-demand.” It brings ANSYS one step closer to the on-demand model. Companies like Rescale also offer simulation infrastructure (software-hardware combination) available on demand, spawning the new term PaaS (platform-as-a-service).

“The leading and exciting offering we have right now at ANSYS is single-tenant cloud (STC) setup,” says Milhem. “We’re working on a new generation that will be multi-tenant cloud (MTC).” But SaaS for CAD and SaaS for CAE may not be identical, he cautioned. “For our industry, the elastic model we offer is SaaS-based, because you only use it for as much as you need to, and you pay per hour usage. Both STC and MTC are complementary and are targeting different markets,” he says.

Milhem specified that ANSYS’ elastic licensing will complement the company’s existing offering of leased and paid-up licenses. “Our customer base and future customers have options and will choose what fits their needs,” he adds.

Redefining the ‘V’ in VAR

When perpetual licensing was the default purchase option, CAD vendors relied heavily on resellers, or value-added reseller (VAR) networks. In addition to selling the software, VARs usually operate as first-level support providers. They also offer training, consultancy and complementary services. With perpetual licenses typically priced between $1,500 to $4,000, VARs stand to generate significant revenues by nurturing a pool of core accounts.

Subscription commerce, however, is drastically different. The emphasis is on low prices (around $100 per user per month) and volume sales. Online software distribution sites like Novedge have proven that design and engineering software can be marketed just like books on Amazon.com. It challenges the conventional thinking that VARs are essential to the transaction. Therefore, the VARs’ role in the new era needs to be calibrated.

“The VARs still adding ‘value’ will have a sustainable relationship with their customers. They may even have more opportunities to generate revenue because of the different types of cloud software customers will be deploying. Smart partners will figure out ways to help customers integrate products,” says Anagnost.

Even with a hassle-free browser-based product like Autodesk PLM 360, VARs can still offer services, “because PLM requires an understanding of the customer’s processes and what they’re trying to accomplish. VARS can help them integrate [the PLM modules] with other enterprise systems and create templates,” says Anagnost.

Anagnost suggests forward-thinking VARs should get ready for the volume-sales model. He asked, rhetorically: “What good is a high margin business if it’s shrinking? Watch where the volume is going. The volume is moving toward the new model, not the old model.”

Siemens PLM’s Jockusch says, “Keep in mind that the purpose of a reseller is to add value to the product they are selling, thus, the term ‘value-added reseller.’ As long as resellers provide real added value to customers, such as services, training and consulting, their role doesn’t fundamentally change with a subscription model.”

Owners vs. Renters

Perpetual licensing is attractive to those who view software as an asset. For such buyers, the comparatively higher upfront cost is well worth the assurance that comes with lifetime ownership. The perpetual license ensures the software will remain in their possession even if the original developer’s fortune falters or fails.

But a new class of software users trained on SaaS challenges this established notion. They view software as a means to an end, a digital tool to get the job done. For them, extending the cost of ownership beyond the usefulness of the tool doesn’t make sense. (In the design and engineering software market, the cost of ownership comes in the form of annual maintenance fees and renewable support contracts, which can certainly add up over time.) Subscription advocates like Autodesk and Onshape are counting on the “I’d-rather-rent” crowd’s growth to outpace the “I’d-rather-own” crowd.